There is a reason economist Keynes is a survivor

November 13, 2009|By ALLAN POWELL

John M. Keynes, the great British economist, has been buried and resurrected several times since he wrote his letters to Franklin Roosevelt in 1933 and 1934.

In these letters, Keynes suggested several policies to stimulate a failed economy and restore prosperity. Roosevelt and his "brain trust" accepted Keynes' basic proposition that government properly had an active role to play when an economy was seriously faltering.

With the New Deal came several "make-work" agencies to provide employment and improve the infrastructure of this nation. Many of us remember the many laborers at WPA, CWA, CCC, NYA and PWA work sites during the Great Depression. Also, there were several regulatory reforms passed by Congress that incurred the animosity of those who favored a free market.

The recovery measures were not as effective in curing unemployment as World War II and the regulatory reforms were watered down or unenforced during the Reagan years. As a consequence, Keynesian theory took a back burner and he attracted but slight attention until another slowdown or meltdown catapults him back into our view.

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An unexpected source of Keynesian thought came during the second Bush era, when he declared that his tax cuts would stimulate the economy and were Keynesian measures. His critics pointed out that "make-work" projects were more beneficial to the unemployed working class while the tax cuts were directed toward the upper ranks of our society.

Proof that Keynes is a survivor came in September, when Carlos Lazada, a book reviewer in the Outlook portion of the Washington Post, gave a most complimentary analysis of Robert Skidelsky's "Keynes: A Return of the Master."

The author considered Keynes to be "the most intuitive of economists." Moreover, "Thanks to the Great Recession, John Maynard Keynes is back to bail us out." A reading of Skidelsky's fine book shows that one of Keynes' most basic assumptions - that the market was too volatile and unpredictable to be expected to perform as classical economics claimed it to be - has been abundantly vindicated. Yet, in addition to a prescient intuition, Keynes had a very analytical mind to guide him through the maze of market behavior.

The reluctance of so many to appreciate the brilliance and importance of Keynes has always been a puzzle. In 1950, my master's research paper on Keynesian economics was approved and I came to Hagerstown. At that time, Keynes was relatively unknown to the general public. In conversation one evening with a wealthy acquaintance, I made mention that Keynes was the topic of my thesis. Very quickly, I was informed that Keynes was a "crackpot." The next topic was how beautiful the fall weather was that year.

The more important issue at this point is the propensity of the market to have notable fluctuations that have disastrous consequences for so many families. When these dislocations take place, there is a predictable clash of opinion about how to manage these meltdowns.

Many members of the business community will swear by the advice given by another British economist, Adam Smith. He proposed a "free market" that was self-regulating. Keynes rejected this idea and called for government intervention on slowdowns with repayment of the debt when the market had recovered.

Citizens who are so dramatically victimized by the massive failure of these giant manipulators of money and risk need not be timid about pressing for adequate regulatory restraints. They are not timid about appealing to the government for financial bailouts when they flounder.

We do not yet know how much influence any one economist exerts on public policy - we have only the intuitive opinions of their disciples. Keynesian ideas have been around long enough to make us wary of the generous praise in the mantras of free-market believers. The fiction of "a free and self-regulating market," "rational economic man" and "government is not the answer to the problem - it is the problem" ring hollow when we witness such irresponsible behavior by the elite of our financial leaders.

Regardless of lack of popularity of such a gifted man, when there are signs of a serious slowdown in our economy, you don't have to wait very long before the ideas of John M. Keynes are again pulled off the bookshelf for ready use. He is a survivor - and for good reason.

Allan Powell is a professor emeritus of philosophy at Hagerstown Community College.